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On 27 April 2007, China submitted its arguments against the claims filed by the US, the EU and Canada concerning China’s tariff treatment of imported auto parts. This is the first WTO dispute panel to be established against China since its accession to the WTO in December 2001. In previous cases, China had been able to reach a solution in the course of consultations with the affected country. However, in the case at hand, consultations failed and, on 15 September 2006, the EU, the US and Canada formally filed separate requests for the establishment of a WTO Panel to rule on this matter. Under the Chinese Regulations that have been put into question, China imposes tariffs on imported auto parts equivalent to the tariff imposed on complete vehicles (ie, around 25% duty) if the imported parts constitute 60% of the vehicle’s content or 60% of the vehicle’s price (or when specific combinations of imported auto parts are used in the final vehicle). Imports of components representing less than 60% of the total value of a vehicle are subject to a tariff of only 10%.

In particular, the complainants argue that the tariff surcharge constitutes a discriminatory tax in favour of domestic over imported goods and is intended to encourage auto parts manufacturers to establish production facilities in China as well as to protect domestic producers.

In its submission, China argues that the system is designed for consumer protection purposes and that the measures were adopted to prevent circumvention of its tariff rates for motor vehicles. In this respect, China believes that the tariffs are “entirely consistent” with practices of other WTO Members under similar circumstances. China also adds that the measures in question are border taxes and not internal taxes and so do not constitute a discriminatory tax in favour of domestic over imported goods.

The Panel is expected to give its final ruling to the parties in December 2007, followed with its public circulation in early 2008.